Snowman Logistcis - Initiating Coverage Report - ULJK Buy TP Rs. 120

Some of the key highlights from the report are as follows:

Strong Business Model.. likely to get an early mover advantage: The Indian market for cold chain storage and transporting of perishable products is still at a nascent stage compared to the global standard. Still a large part of the industry is dominated by the un-originated players. However, with new MNC fod chains coming in and changing life styles and food habits of the Indian consumers there is more and more demand for fresh and hygienic products. The company derives a majority of its business form the business like Poultry & Meat, Ice Creams, Dairy Products, Agro Products and Sea Food, which combined account for ~78% of the revenue.

Innovative revenue stream to ensure maximum utilization: Snowman has well balanced business model with dedicated chambers, where in the entire specified capacity is sold to the clients and charged are fixed even if the client is not using the space. Further it has Guaranteed Space arrangement where in certain portion are kept reserved for the clients as per the clients requirement and if the client does not use it then the company has the option to rent it out to its pay & park customers. And for the smaller clients it has the pay and park options, chargeable as per actual usage. From revenue point of view Pay & Park accounted for 50%, while Dedicated chambers and Guaranteed space accounted for 25% each of the revenue.

First mover advantage likely to play in the long run. Expect strong business growth going ahead: The Indian cold chain and temperature controlled transportation business is still at nascent stage with largely un organized players controlling the market. However, Snowman is aggressively expanding capacity and with high growth in the segment Snowman will have the first mover advantage. We expect the company to report Revenue/ EBITDA/PAT CAGR of 28%/33%/20% over FY15-17.

Valuation & Outlook: At the CMP of Rs 97 the stock is trading at a rich valuation of 46.4x and 45x its FY16E & FY17E EPS of Rs 2.1 and Rs 2.15 respectively. Lower EPS growth compared to EBITDA is due to high depreciation due to capex, which we believe is will make the company stronger going ahead. On EV/EBITDA basis the stock is trading at 28x and 21x its FY16/17 EBITDA respectively. We believe lack of direct competitors in the listed space will make the company a good buy despite its rich valuations and the company would continue to attract premium valuations. We have valued the stock at 25x its FY17 EBITDA recommend BUY with a target price of Rs 120, implying 24% upside from current level.

Source : Equity Bulls

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